Can Federal Agencies Get More Out of Contracting to Improve Government Efficiency?

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1 Accenture Federal Services Delivering Public Service for the Future Can Federal Agencies Get More Out of Contracting to Improve Government Efficiency? A Candid Survey of Federal Managers

2 Today federal agencies face a number of competing priorities and pressing challenges: While the scope of their missions expand, their budgets remain unchanged and, in some cases, are shrinking. While limits remain on the number of people departments or agencies can have on staff, demands for highly specialized, skilled and experienced personnel continue to increase. To address the most urgent of these needs and close the capabilities gap, agencies are relying increasingly on outside resources, via staff augmentation, shared and business process outsourcing (BPO). Although a clear majority of government agencies employ shared and BPO to help achieve their missions, Accenture research shows a lack of deep familiarity with these service delivery models. During a time of unprecedented fiscal austerity, federal agencies must link spending to specific outcomes, match budgets to priorities and achieve demonstrable savings. Federal leaders should assess their staffing needs holistically and identify opportunities for increasing efficiency, particularly when there is value in standardizing processes across agencies. There are further opportunities from moving operations to a commercial provider that can supply unique expertise, technologies, or business processes quickly and affordably. Recognizing this government-wide contracting challenge, Accenture Federal Services and Government Business Council (GBC) undertook a study to evaluate the current state of contracting, shared and BPO, and explore the opportunities and obstacles of modernization in delivering public service for the future. To assess the perceptions, attitudes and experiences of federal managers regarding different forms of outsourcing, Accenture and GBC deployed a survey to a sample of Government Executive, Nextgov and Defense One online and print subscribers. The pool of 385 respondents included employees at the GS/GM grade levels and members of the Senior Executive Service among at least 34 federal and defense agencies. What the Survey Found Although all agencies outsource, awareness of the different types varies Staff augmentation is the most common form of outsourcing, even though it can cost as much as 80 percent more for a contractor to perform the same functions as an agency employee. While 86 percent of respondents said their agency relies on contract personnel for mission-focused or mission support work, 65 percent said their agency outsources to third-party vendors. Even though all agencies use shared, respondents are the least familiar with this type of outsourcing. Only 12 percent of respondents indicate that their agency uses provided by another department/agency. Agencies rely on outsourcing as a source for outside expertise and technology Whatever form of outsourcing agencies use, most do so to leverage external knowledge and expertise. They are also seeking access to external technologies and business processes. Additionally, the study revealed that agencies believe shared can help standardize processes across government organizations, and that both contract personnel and BPO can help agencies bypass headcount restrictions on fulltime employees. Most concerns regarding outsourcing center on costs Respondents greatest concerns are overpaying for BPO and shared. While 62 percent of respondents voiced concerns over BPO costs, 56 percent voiced similar concerns over shared costs. Senior-level managers were less likely to be concerned about job losses than their mid-level counterparts, and worried more about losing institutional memory and operational control. Federal managers rate their experience with outsourcing between satisfactory and good When asked to grade their experiences with outsourcing on a scale ranging from A to F, most respondents gave contract personnel a B-, shared a B- and BPO a C+ or C. Senior-level managers tended to grade outsourcing more favorably than their mid-level counterparts. Types of Outsourcing Staff augmentation refers to a government agency s contractual relationship with a commercial firm to provide labor, often for an extended period of time with a prescribed hourly rate. Shared refers to centralized applications or business processes provided either across a single department or agency, or by one federal agency to other departments and agencies. A commercial provider frequently offers support to a shared operation. In contrast, BPO typically involves handing over the execution of a specific function or business process to a third-party often offsite commercial provider. 2

3 Current State of Federal Outsourcing An overwhelming majority of federal managers say their agency currently outsources in some form Nearly all federal managers say their agency currently outsources Does your department/agency currently outsource any? No 4% 4% Yes 92% All respondents, n=385 Federal managers are aware that their agency employs contract personnel Does your department/agency currently employ contract personnel to augment its staff of federal employees? Missionfocused work 18% 86% No 8% Both 38% Mission support work of respondents say their agency employs contract personnel for mission-focused or mission support work Don t know 6% All respondents, n=385 The answer choices for mission-focused work and mission support work are not mutually exclusive 3

4 Federal managers are also aware that their agency uses business process outsourcing Does your department/agency currently outsource to thirdparty vendors (entities outside the federal government)? Missionfocused 11% 65% No 15% Both Mission support 29% of respondents say their agency uses BPO for mission-focused or mission support Don t know 20% All respondents, n=385 The answer choices for mission-focused and mission support are not mutually exclusive Federal managers are much less aware that their agency utilizes shared Does your department/agency currently use provided by a Federal Shared Service Center (FSSC)? Missionfocused 3% Both 2% Mission support 7% Don t know 60% Only 12% say their agency uses shared for mission-focused or mission support No 28% All respondents, n=385 The answer choices for mission-focused and mission support are not mutually exclusive 4

5 However, all federal agencies use shared in one form or another Service Providers Administrative Resource Center Shared Services Center (GSA) (Treasury) Interior Business Center (DOI) Federal Geospatial Data (DOI) Lines of Business Financial / Grants management Human Resources Information systems security Geographic information system data Personnel Advisory Services (DOD) Defense Civilian Services (DOD) & Accounting Defense Finance National Finance Center (USDA) ProgramSupport Center (HHS) Enterprise Services Center (DOT) Federal managers cite contract personnel as the most common source of outsourcing Types of Outsourcing Used by Federal Agencies Contract personnel Business process outsourcing Shared However, contract personnel are also the most expensive: 56% 36% 68% 53% Contract personnel can sometimes cost federal agencies as much as 80% more than federal employees to perform comparable functions. 1 Shared and BPO, on the other hand, are able to leverage efficiencies from scale and specialization, and are often able to deliver a lower average cost for a given service. 5% 9% Mission-focused Respondents who say their agency uses outsourcing 1. Project on Government Oversight, Mission support 5

6 Federal managers rate their overall experience with outsourcing as satisfactory How would you grade your department/agency s experience with each of the following modes of service delivery? A: Excellent B: Good C: Satisfactory D: Unsatisfactory F: Poor Contract personnel 8% 27% 48% of respondents disagree or strongly disagree 19% 9% Average Letter Grade B- Shared 5% 35% 14% 16% B- Business process outsourcing 4% 16% 13% C+ Respondents who say their agency uses outsourcing ( don t know omitted) Contract personnel n=295, shared n=49, BPO n=201 Why and What Federal Agencies Outsource Federal managers cite access to external expertise and technological infrastructure, standardized processes, and alternative staffing solutions as top reasons for outsourcing. Gaining outside expertise and working around headcount limits are the chief reasons federal agencies hire contract personnel Top Reasons Agencies Employ Contract Personnel Leveraging external knowledge/expertise 41% Bypassing restrictions/headcounts on federal labor Leveraging external technological infrastructure/business processes 34% Addressing short-term fluctuations in workload 29% Allowing department/agency to focus on core competencies 23% Achieving cost savings 20% Standardizing processes across federal business units/agencies 13% 18% 14% Respondents who say their agency employs contract personnel, n=334 6

7 Senior-level managers perceive greater benefits of using contract personnel Top Reasons for Employing Contract Personnel, by Job Grade 56% Aggregate GS/GM-14 and Above GS/GM-13 and Below 47% 41% 34% 39% 28% 29% 27% 29% 21% 20% 23% 16% External knowledge/ expertise Bypassing headcounts External infrastructure/ processes Addressing workload fluctuations Achieving cost savings Respondents who say their agency employs contract personnel Aggregate n=334, GS/GM-14 and above n=160, GS/GM-13 and below n=174 BPO also helps agencies gain useful expertise and bypass headcount restrictions Top Reasons Agencies Use Business Process Outsourcing Leveraging external knowledge/expertise 44% Bypassing restrictions/headcounts on federal labor Leveraging external technological infrastructure/business processes 39% Addressing short-term fluctuations in workload Achieving cost savings Allowing department/agency to focus on core competencies 21% 27% Standardizing processes across federal business units/agencies 9% 13% Respondents who say their agency uses BPO, n=250 13% 7

8 Senior-level managers perceive greater benefits of using BPO Top Reasons for Using BPO, by Job Grade 59% Aggregate GS/GM-14 and Above GS/GM-13 and Below 44% 31% 39% 45% 34% 31% 27% 18% 20% 27% External knowledge/ expertise Bypassing headcounts External infrastructure/ processes Addressing workload fluctuations Achieving cost savings Respondents who say their agency uses BPO Aggregate n=249, GS/GM-14 and above n=123, GS/GM-13 and below n=126 Shared helps agencies gain useful expertise and standardize processes Top Reasons Agencies Use Shared Services Standardizing processes across federal business units/agencies Leveraging external technological infrastructure/business processes 47% 47% Achieving cost savings Allowing department/agency to focus on core competencies Leveraging external knowledge/expertise 40% 42% Addressing short-term fluctuations in workload Bypassing restrictions/headcounts on federal labor 16% 7% Respondents who say their agency uses shared, n=53 8

9 Standardization and cost savings are associated more with shared than contract personnel or BPO or BPO Reasons for Outsourcing, by Type Contract personnel Business process outsourcing Shared 41% 44% 40% 39% 34% 47% 47% 20% 13% 9% External knowledge/ expertise Bypassing headcounts External infrastructure/ processes Standardizing processes Achieving cost savings Respondents who say their agency uses outsourcing Contract personnel n=336, BPO n=250, and shared n=53 Federal managers report that BPO is used for a range of, including IT Top Services Outsourced to Third-Party Vendors (BPO) Custom IT 67% Commodity IT 52% Performance management 44% Logistics 34% Human capital 34% Advisory 34% Content management 29% Acquisition 26% Financial management 23% Claims, eligibility, and appeals processing 15% Grants and loans processing 8% 15% 2% Respondents who say their agency uses BPO, n=251 9

10 Federal managers report that shared are also used for a wide range of functions Top Federal Shared Services by Line of Business (LOB) IT infrastructure Financial management Human resources management 59% 63% 61% , help desk, & collaboration Information security systems 42% 46% Budget formulation/execution Performance management 27% 26% Grants management 11% Case management 5% 21% 4% Respondents who say their agency uses shared, n=54 Agencies are turning to outsourcing for cloud as well For which, if any, of the following cloud computing does your department/ agency contract with third-party vendors? Software-as-a-service (SaaS) Infrastructure-as-a-service (IaaS) 36% Business Processas-a-Service Platform-as-a-service (PaaS) Business Process-as-a-service (BPaaS) 23% 35% involves the practice of deploying cloud-based software, platforms, and infrastructure to automate and simplify an end-to-end business processes None of the above All respondents ( don t know omitted), n=172 10

11 Concerns with Outsourcing Federal managers cite high costs, poor quality and less control over governmental functions as top concerns with outsourcing High costs, poor quality, ceding governmental functions top the list of concerns with BPO Concerns with Outsourcing Business Services to Third-Party Vendors (BPO) Overpaying for 62% Contractors performing "inherently governmental" functions 48% Decline in service quality 48% Loss of institutional memory 42% Loss of operational control 41% Federal job losses Information security concerns 40% 36% Inherently governmental functions Vendor lock-in Project delays None of the above 6% 10% 31% are those related to policymaking, regulating, and managing federal employees. These functions must be performed exclusively by federal employees. All respondents, n=379 12% Respondents leading concerns with BPO vary based on their level of seniority Top Concerns with BPO, by Job Grade 62% 68% 59% Senior-level managers tend to be more concerned with losing institutional memory, and less concerned with job losses, than their mid-level counterparts 51% 48% 47% 48% 49% 47% 51% 42% 44% 41% 39% 40% 36% 46% Overpaying for Inherently governmental functions All respondents Aggregate n=377, GS/GM-14 and above n=163, GS/GM-13 and below n=214 Decline in service quality Loss of institutional memory Loss of operational control Aggregate GS/GM-14 and Above GS/GM-13 and Below Job losses 11

12 Federal managers concerns with shared are largely the same Concerns with Using Shared Services Overpaying for 56% Loss of institutional memory 40% Decline in service quality 39% Loss of operational control 36% Information security concerns 35% Departmental job losses Project delays Vendor lock-in 10% 23% However, of respondents who answered that their agency currently uses shared, cite cost savings as a top motivator for turning to shared. None of the above 11% 16% All respondents, n=384 Respondents level of seniority also affects their biggest concerns with shared Top Concerns with Shared Services, by Job Grade 56% 56% 56% 55% Senior-level managers tend to be more concerned with losing institutional memory and operational control, and less concerned with job losses, than their mid-level counterparts 40% 39% 31% 45% 38% 35% 35% 35% 35% 42% 35% Overpaying for Loss of institutional memory Decline in service quality Information security Loss of operational control Job losses All respondents Aggregate n=381, GS/GM-14 and above n=166, GS/GM-13 and below n=215 Aggregate GS/GM-14 and Above GS/GM-13 and Below 12

13 However, federal managers tend to have greater concerns with BPO across the board Top Concerns with BPO and Shared Services 62% Business process outsourcing Shared 56% 48% 42% 39% 40% 40% 40% 35% 36% 36% 31% 29% 23% Overpaying for Decline in service quality Loss of institutional memory Loss of operational control Job losses Information security concerns Vendor lock-in Project delays All respondents BPO n=379, shared n=384 How to Use Outsourcing to Improve Government Efficiency and Performance Consolidate and scale existing functions using shared and BPO to generate real cost savings The survey data shows that leveraging external knowledge and dealing with federal labor restrictions are two major reasons why agencies currently turn to contract personnel. While staff augmentation can allow agencies to procure outside expertise on a temporary basis, using contract personnel to address headcount challenges should not be a driver for an outsourcing strategy. Rather, federal agencies would be better served by assessing their needs more holistically and identifying the appropriate mix of internal and external capabilities to address them. In many cases, it may prove to be more cost-effective to consolidate contractor functions and move them to a shared service center particularly when there is value in standardizing processes across agencies. In other cases, it may be more efficient to move operations outside the walls of the federal government to a commercial provider that can provide unique expertise, technologies or business processes quickly and affordably. Articulate the costs and benefits associated with shared and BPO Every federal agency outsources. However, 60 percent of federal managers are not aware that their agency already uses provided by a federal shared center (FSSC). Both FSSCs and commercial providers should clearly articulate the costs and benefits of shared and BPO. Further, if the chief concern with outsourcing is fear of overpayment, then providers must do a better job of demonstrating evidence to the contrary. Involve federal employees as stakeholders in a more efficient government When deciding to outsource, agencies should ensure that the reasons for doing so are effectively communicated to employees. The lack of awareness regarding certain types of outsourcing shared and BPO could be improved by making open channels of communication between senior-level leadership and mid-level managers a top priority. Case studies and objective performance data can show not just tell employees the positive impact outsourcing can have on agency effectiveness. Optimizing contracting, shared and business process outsourcing may seem like a tall order for many federal agencies. But by better articulating their needs and setting clear goals as well as expectations, organizations can efficiently and effectively meet mission demands and deliver public service for the future. 13

14 Respondent Profile Nearly half of the survey respondents are senior-level managers, mostly from civilian agencies representing a wide variety of job functions Almost half of survey respondents are senior-level managers, mostly from civilian agencies SES 3% of respondents GS/GM-15 20% are GS/GM-14 and above senior-level GS/GM-14 20% managers GS/GM-13 23% Defense 35% GS/GM-12 14% Civilian 65% GS/GM-11 7% 13% All respondents Job Grade n=381, Department/Agency n=385 Respondents represent a wide variety of job functions Job Function Program/project management 18% Acquisition and procurement 13% Finance 10% Technical/scientific 9% Administrative 8% Human capital Agency leadership Information technology Policy research 4% 5% 7% 7% includes communications, investigation/law enforcement, logistics functions 19% All respondents, n=381 14

15 For more information about how outsourcing can support your agency s overall efficiency strategy: Glenn Davidson Managing Director glenn.k.davidson@accenturefederal.com Visit us at: accenture.com/federal on Twitter Connect with us on LinkedIn For more information about the survey: Zoe Grotophorst Manager, Research & Strategic Insights zgrotophorst@govexec.com Visit GBC at: Copyright 2015 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture. About Government Business Council Government Business Council (GBC), the research arm of Government Executive Media Group, is dedicated to advancing the business of government through analysis and insight. GBC partners with industry to share best practices with top government decision-makers, understanding the deep value inherent in industry s experience engaging and supporting federal agencies. About Accenture Federal Services Accenture Federal Services is a U.S. company, with offices in Arlington, Va., and is a wholly owned subsidiary of Accenture LLP. Accenture s federal business has served every cabinet-level department and 30 of the largest federal organizations with clients at defense, intelligence, public safety, civilian and military health organizations. About Accenture Accenture is a global management consulting, technology and outsourcing company, with more than 323,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$30.0 billion for the fiscal year ended Aug. 31, Its home page is 15

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